Bonds - Creation and Monetising

This includes Live Birth Trusts (LBT), and "Accepted for value" (A4V)

Re: Bonds - Creation and Monetising

Postby huntingross » Fri Jan 29, 2010 7:40 pm

So I'm an architect, I let contracts frequently, and I always ask for a BOND....the QS and legal department always deal with the paperwork, I have never bothered myself with the stuff.....

Until now....

The following is a standard form of BOND that we receive from the Contractors duly completed....

Bond Front.jpg


Bond Back.jpg


The first thing that I noticed of interest to me is.....ITS A TRUST.....

The next thing I notice is.....THERE IS NO SECURITY....just the Guarantor.....Who we "trust" is good for the money if the Contractor goes belly up during the contract. WE never (as far as I know) do any checks on the Guarantor assuming all is well (surely we can't be that relaxed about this)...??

The Expiry for the purposes of a building contract is either Practical Completion or Making Good Defects....depending on the nature of the contract.

At this point the Contractors are desperate....DESPERATE....to have the BOND expired.....

The reason is that Banks are normally the Guarantors and stand as the Security and charge the Contractor (usually as interest on an overdraft) for the duration of the BOND. So the quicker it is expired the less money the Contractor is being charged.

When it is expired......guess what they ask for....THE ORIGINAL.....our legal department usually has lost it by now (I shit you not) and a standard form is sent out or a copy (YES....of the form they no longer have) stating this is the same thing.

So....the Employer hopes the bag in the corner of the room has lots of money in it....(that's the bag with a piece of paper clipped to the front of it saying BOND)....the Contractor pays the Bank interest on a bag in the corner with the paper on the front, the contents of which he has never seen so he can go about his business.

If it all goes belly up, the employer looks in the bag.....which we have always assumed is full of money.....AND it probably always has been (loosely speaking) because our fine upstanding institutions have been good for it.....

I wonder if our legal department, in light of recent events will be more suspect about the contents of the bag....??

NO....no, I don't think so either.

SO.....The relevance of this story.....

Lets say the Guarantor is the UK Government, to which the STRAWMAN pays interest (lets call that National Insurance....the title even sounds right)....then it seems more than reasonable to draw up a TRUST to cover all the eventualities and WE are BONDED to drive (I mean travel) on the highways......

NES PAS.
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Re: Bonds - Creation and Monetising

Postby huntingross » Tue Feb 02, 2010 9:44 pm

My next thought for Bonded car insurance at £500,000 is this

Public liability Insurance for a limited company with 10 employees comes in at £200 per year for £2m.

I would write a Bond secured against that policy number and deposit it according to the RTA requirements.

It would seem to me that any number of Bonds could be written against the PLI as it is unlikely that more than 10 would be called upon in any one year.....similar to fractional banking, which is good enough for them, it's good enough for us.

Thoughts are welcome.
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Re: Bonds - Creation and Monetising

Postby huntingross » Wed Feb 03, 2010 9:13 pm

Anyone ?

Just based on 10 people this is annual motoring for £20 each
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Re: Bonds - Creation and Monetising

Postby holy vehm » Wed Feb 03, 2010 9:37 pm

nice one hr, thats something ive been on about myself. it does seem possible does'nt it. so whats the next move?
do you need to set up a company?
would just one person be able to bond on behalf of, how many? thousands?

hv
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Re: Bonds - Creation and Monetising

Postby huntingross » Wed Feb 03, 2010 9:45 pm

hi hv

I already have a company and ran the numbers last night to get a quote.....as described earlier.

If my thinking is correct, this would in effect be Third Party cover......and a Bond would be issued to everyone to lodge in accordance with the RTA requirements.

As for limits, I don't see why a reasonable number couldn't be balanced on one policy....the risk of claims shouldn't exceed the £2m per year limit of the policy.....

There was a post just recently that said the average claim is £2k.....
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Re: Bonds - Creation and Monetising

Postby holy vehm » Wed Feb 03, 2010 9:50 pm

so as long as you allowed people with good driving habits ect and therefore less likely to claim one bond would do many wouldnt it.
could the directors of a company also take out a bond, then they could cover as many again?
or is it the company itself that would take out the bond.
if so how many bonds can it have?

very interesting this mate
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Re: Bonds - Creation and Monetising

Postby huntingross » Wed Feb 03, 2010 10:04 pm

The policy is the security....any number of bonds could be written against it.

As long as the claims from the bonds do not collectively amount to more than the policy annual limit, then (to my mind) all is well.

If there were more than 10 claims at one time, that would exceed the employee limit (in this example) and might ring some bells.

This seems to operate just as the Contractor Bonds I described above....the Banks acts as guarantor and write many bonds without ever declaring the security base...I would guess they lay their risks off with further insurances.

I would also guess they hardly ever get exposed financially whilst collecting from the contractors.

In theory, if this worked 'not for profit'.....any excess collected over the policy cost (£200) would be money issued to bond holders to settle claims.

The expiry of the bond (might be annual)....we would require the original to be returned.....Can we assume we never get the originals back !!!!.....this would have to be charged on the holder and could be lucrative as I would guess they are monetising our bonds...(guessing there)....this charge would feed back into settling claims and so on.
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Re: Bonds - Creation and Monetising

Postby holy vehm » Wed Feb 03, 2010 10:11 pm

i must say you seem to have nailed this one my friend. the theory is there and so it seems the practical.
The potential for this is massive.
Do you have any plans to put it into practice.

hv
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Re: Bonds - Creation and Monetising

Postby huntingross » Wed Feb 03, 2010 10:17 pm

I'm more than happy to offer a service like this but I need to know there is a market for it.

I also need to do a little more digging on policies and pay outs etc.....and in the meantime hope that the theory is scrutinised more....so far it seems to stand up.

When you think 100 people drops your annual Third Party insurance to less than a Sunday news paper, it deserves some serious looking at.
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Re: Bonds - Creation and Monetising

Postby huntingross » Wed Feb 03, 2010 10:59 pm

Thought I better post this so everyone knows what I'm talking about

Road Traffic Act 1991 (c. 40)

Exception from requirement of third-party insurance.

20. (1) Section 144 of the Road Traffic Act 1988 shall be amended as follows.

(2) In subsection (1)(which removes the requirement for third-party insurance or security where £15,000 is kept deposited with the Accountant General of the Supreme Court) for “£15,000” there shall be substituted "£500,000".
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